UPDATE 2-Ryanair seeks binding deals to allay EU on Aer Lingus

DUBLIN, Feb 5 (Reuters) - Ryanair is seeking binding
commitments from two rivals to compete with it as part of a
last-ditch attempt to secure anti-monopoly approval for a
takeover of smaller Irish rival Aer Lingus, a source
close to the deal said on Tuesday.

British Airways and Flybe have agreed in
principle to increase their presence on the Irish market to
allay concerns of the European Commission, Europe's
anti-monopoly watchdog, but Ryanair is seeking a binding
commitment approved by their respective boards, the source said.

The European Commission last week indicated that the package
of concessions will be Ryanair's last chance to convince it of
the merits of the Aer Lingus deal.

British Airways management has agreed to take over Aer
Lingus routes between Dublin and London's Gatwick Airport, the
source said.

Rival Flybe said in a statement that it had committed in
principle to setting up an Irish subsidiary, with 100 million
euros of capital provided by Ryanair, to take over Aer Lingus
routes.

Analysts say the concessions have raised the chance of
approval by the European Commission, and Aer Lingus' share price
has climbed from 1.10 euro at the start of January to 1.28, just
short of the 1.30 euro bid price.

But concerns remain about the strength of Flybe, which has
issued profit warnings in recent months and laid off 10 percent
of its UK based staff.

Some observers have also questioned the commercial logic for
British Airways, which is based in Heathrow, of launching
additional capacity from Gatwick.

"If investors were putting on 10 percent probability, now
they might be putting on a 30-40 percent probability," a
Dublin-based trader said.

Ryanair had offered to sell Aer Lingus' Heathrow routes to
British Airways to allay concerns the merger would curb
competition on routes between the United Kingdom and Ireland.

But the fact that Aer Lingus requires the approval of over
75 percent of its shareholders to dispose of Heathrow slots
raised concerns in the European Commission about the ability of
the merged airline to sell the slots, the source said.

The Irish government, which owns 25 percent of Aer Lingus,
has said it opposes Ryanair's bid.

Instead, British Airways will commit to take on Aer Lingus
routes between Gatwick Airport and Dublin, with an option to
take over the Heathrow routes if Ryanair ultimately secures over
75 percent, the source said.

A spokesman for British Airways declined to comment.

The new Flybe subsidiary would operate 43 routes that are
currently worth around 20 million euros in profit to Aer Lingus
each year, the source said.

Ryanair would have no involvement with Flybe after the new
venture's creation and will not guarantee its profits, the
source said.

Flybe, a low-cost regional airline group operating over 180
routes to 65 European airports, said in a statement that the
deal was subject to EU commission approval.